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Summary:

Once protected by the hype bubble, Facebook is getting a hard lesson in the realities of the public markets. Despite the massive build-up to its IPO today, the market response has been more tepid than expected.

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Once protected by the hype bubble, Facebook is getting a hard lesson in the realities of the public markets. Despite the massive build-up to its IPO today, the market response has been more tepid than expected.

After a delayed start, Facebook started trading at $42, about 10.5 percent above its offer price of $38. But over the course of the day, it gradually traded down to close at $38.23, barely squeaking in above its starting price. In after hours trading, the price remained around $38.27. According to analysts and industry reports, whenever the stock threatened to fall below the opening price, Facebook’s underwriters stepped in to prop it up.

“We are seeing the stock hit reality like a brick wall,” said GreenCrest Capital senior managing analyst Anupam Palit.  Facebook’s scale and engagement might have pushed its valuation to $100 billion, but, like every other public company it’s not immune to the larger economic trends.

Palit said he expected Facebook’s first day to be less dramatic than that of its public tech peers (like LinkedIn, Pandora and Groupon, which all saw a first-day pop of at least 30 percent), but added that today was “definitely more muted” than anticipated.

Still, he said that Facebook’s performance was generally positive considering that “the guys who have flown really high on their IPO have tumbled in subsequent weeks.”

Also, while first-day retail interest in other tech stocks had been essentially nonexistent, Palit said, retail buyers were much more interested in Facebook.

“It is a much more ‘tangible’ company because the average person uses it and knows what it is,” he said. “There are retail investors who want to say they took part in this because it is a big moment in market history.”

That played out today, he said, as retail buyers were willing to push the stock above $40, while institutional investors, who are more sensitive to valuation, wanted to keep the price lower. In the following weeks, Palit expects the price to continue to fall, eventually settling around $32.

On Friday, more than 577 million shares in Facebook changed hands, setting a new record for IPO trading volume.

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  1. wow day for Facebook

  2. Zoe Alexander Friday, May 18, 2012

    Wow! An immense number of shares! Not really that surprised by what happened on the 1st day of trading. I’m sure in the fullness of time shares will grow in value once the initial furore has been overcome.

  3. The 1st day of trading should be taken with a massive bucket of salt. That being said, good luck to them.

  4. Delbert Kim Friday, May 18, 2012

    I just have a hard time seeing Facebook monetize in ways that don’t turn off their users. GM shed light on a pressing issue with Facebook, in that, even their bread and butter advertising platform made possible by all the personal data mining, it still isn’t as relevant as a punch as the platforms of Google, Bing, etc.

    With that said, Facebook is social media, so there is tremendous power in that. However, they are still such a young and relatively unproven company.

    It’ll be interesting how this company unfolds in the next 5 years.

  5. FB with market cap > $100B=reality?

  6. While many people are disappointed with FB IPO , in my humble opinion it will be a mistake to look at it in the short term. FB has tremendous potential and when it comes to social communication in the internet it is probably at the top with google and twitter. And it has a huge global footprint which will only grow. Two years from now , if FB is able to grow its revnue and monetize its user base , today’s hype will be justified. If it goes the other way then at least it was worth today’s price because of being at the top , even if it was just for a day. Google was the best until I logged into FB and got in touch with people I had lost touch with many years ago.

  7. mike parsons Sunday, May 20, 2012

    Facebook will be forced to make advertising more intrusive as their new shareholders demand a return on the IPO. Consumers may not be so happy with this tradeoff.

  8. The $100B+ valuation hardly seems a reality check to me. Reality checks would imply that something needs to change. Employees, founders, and investors are all hitting a marvelous payday. They’ll be doing more of the same. No reality checks here.

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